Energy firms collapse hits 1.5 million customers

Near to 1.5 million consumers are affected by the collapse of energy firms due to soaring gas prices.

On Wednesday, Avro Energy and Green Supplier Limited became the latest companies to stop trading. Their total of 830,000 combined customers will switch to a new, possibly more expensive, supplier.

All customers will still receive energy while watchdog Ofgem appoints them with new providers.

Green’s boss, Peter McGirr, says he did not do anything wrong, and warns that larger companies will face problems soon as well. He predicts bigger suppliers will feel “the pain” too, and “will come cap in hand for a bailout”.

Mr McGirr criticises the government for their support of US fertiliser company CF Industries while they allow energy firms to fail. CF Industries are resuming work at their factory that produces carbon dioxide, which is needed by the food industry. When the factory closed people feared the affect it would have on food supplies and the nuclear industry. He doesn’t understand why the government believes they need a bailout, but he doesn’t, when he did nothing wrong.

In response, small business minister Paul Scully says the government treated CF Industries and Green differently because there were “different solutions to different problems”. He says there is “a mature system” in place to deal with collapsing energy firms, “protecting customers both in continuity of supply and prices”.

A ‘robust’ system

However, the government appear to show signs of changing its direction of policy on the energy crisis.

The government previously talked about state-backed loans for bigger energy firms, but this idea is now “very much on the back burner”. It now intends to “tough this one out”.

Ministers insist that the current system for managing failing energy firms is “robust” and has gone through stress-testing.

Meanwhile, Business Secretary Kwasi Kwarteng is monitoring energy forms to predict who might fall next. According to a government spokesperson, he is having daily calls with the chief executive of Ofgem.

So far, Avro Energy is the biggest firm to collapse, with 580,000 customers. It is not known at this stage which company will take over supplying these, along with Green’s former customers.

Protecting customers

Director of retail at Ofgem, Neil Lawrence, says the “number one priority is to protect customers”.

Ofgem are responsible for setting the price cap, which limits the maximum amount an energy firm can charge. But providers now complain that this stops them from passing increasing costs on to customers. Wholesale gas prices are surging, causing several energy companies out of business as they can’t afford to keep up with the rises.

So far this month, Utility, People’s Energy, MoneyPlus and PfP Energy have all ceased trading. Along with Avro and Green, these smaller firms make up over 5% of the UK energy market, equating to around 1.5 million customers.

Mr Lawrence knows “this is a worrying time for many people” as it can be “unsettling” to hear news of a supplier going out of business. He reminds customers of those failed companies that the regulator will appoint them a new provider. He also suggests that it is best if they do not try to switch firms themselves in the meantime.

However, Mr Lawrence warns that other energy providers could face a similar fate.

Hundreds of thousands of people are already affected, and the numbers could rise well above that. But it is difficult to predict just how many.

A worrying time

Lisa Barber from consumer rights group Which? says that speculation of more small firms collapsing in the coming weeks could leave millions of people feeling apprehensive.

For example, Igloo is working with restructuring consultants, but has not appointed administrators. While the UK’s sixth largest energy firm, Bulb, who has 1.7 million customers, is also seeking extra financing.

Customers are reassured though that they will not have their energy supply cut off at any time, or lose their money. Ofgem will appoint new providers to take over and protect any existing credit that customers have. Ms Barber does, however, recommend customers take meter readings as soon as they can to ensure as smooth a transition as possible.

Meanwhile, Citizens Advice has seen a huge increase in the number of people seeking their help. in recent days, around 30,000 people have gone online to check their energy advice pages. Chief executive, Dame Claire Moriarty, says people are coming to them because family finances are “being really squeezed”.

Energy supply issues

Newer, smaller firms are overwhelmed by a hike in the wholesale cost of gas prices. The increase is caused by high demand from Asia pushing supplies to Europe down as economies reopen from lockdown. Rising gas prices are all across Europe, but Britain is also facing issues in renewable energy supplies at the moment. Lower winds than usual is having an impact on the country. In addition, a fire recently broke out at a National Grid site in Kent.

Even before the most recent jump in costs, UK firms were already hit by an increase.

There are now only around 30 energy suppliers in the UK, down from over 70 in 2018. Industry experts fear that by the end of this year it could reduce to as few as just 10.

Ofgem acknowledge that the cost of protecting consumers from collapsed energy suppliers could result in higher bills.

The energy price cap protects customers on some tariffs from sudden hikes in wholesale gas prices. It covers around 15 million households across England, Scotland and Wales.

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